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The new Illinois “fracking” bill: a boon or bust for Illinois oil and gas?

After extensive negotiations among industry groups, environmental coalitions, state legislators and state agencies, including the Department of Natural Resources, the Illinois Environmental Protection Agency and the Illinois Attorney-General, on June 17, 2013, Illinois Governor Pat Quinn signed the Hydraulic Fracturing Regulatory Act (the “Act”) into law. Please see “Illinois Enacts Stringent Fracking Legislation” for our recent blog on the Act. The Act, designed to encourage oil and gas exploration in the state, includes groundbreaking provisions aimed at regulating high-volume oil and gas drilling in Illinois by establishing strict “fracking” regulations. The Act is designed to encourage the responsible development of Illinois’ shale gas resources while offering significant economic, energy security, and environmental benefits. Some, however, believe the Act is too restrictive to yield the expected benefits.

By way of background, hydraulic fracturing, or “fracking,” is a technique used to create small fractures in the rock formations in order to release petroleum, natural gas (including shale gas, tight gas, and coal seam gas) or other substances for extraction. Traditional concerns about employing the use of fracking include (i) stress on surface water and ground water supplies from the withdrawal of large volumes of water, (ii) contamination of underground sources of drinking water and surface waters resulting from spills, faulty well construction, or by other means, (iii) adverse impacts from discharges into surface waters or from disposal into underground injection wells, and (iv) air pollution resulting from the release of volatile organic compounds, hazardous air pollutants, and greenhouse gases.1 Many believe that horizontal drilling and fracking will allow for the recovery of oil and natural gas from formations that geologists once believed were impossible to produce, such as the tight shale formations found in the New Albany Shale in Southern Illinois. The United States Geologic Survey estimates show that the Illinois Basin, which covers parts of Illinois, Indiana, Kentucky, Missouri, Ohio and Tennessee, contains 214 million barrels of oil and 4.65 trillion cubic feet of natural gas, and the New Albany Shale play is considered the primary source of hydrocarbons in the Illinois Basin.2

Advocates of the Act argue that it provides reasonable control over the risks associated with fracking and the Act has been lauded as containing the nation’s strongest environmental protections. According to the Illinois General Assembly, the Act includes the following:

Prohibits high volume horizontal hydraulic fracturing operations performed without a permit;

Regulates where high volume horizontal hydraulic fracturing operations are proposed, planned or occurring may be located;

Provides requirements for permit applications, modification, suspension, and revocation of permits, insurance, well construction and drilling, disclosures, water quality monitoring, investigation and enforcement, violations and penalties and administrative review; and

Authorizes the Department of Natural Resources to adopt rules as may be necessary to accomplish the purposes of the Act.3

The Act, however, also includes strong protections against fracking-related water pollution, such as a prohibition on open-air ponds for wastewater storage, strong wastewater management requirements, and comprehensive water monitoring requirements, and places the burden on the energy companies to prove that contamination of water sources near the well site were not caused by fracking. The Act also ensures that the public will have access to information about fracking, including the types of chemicals that are used, how much water is used, the source of the water, and detailed descriptions of fracking operations, and gives the public the opportunity to engage in the oversight of fracking activity.

Further, governmental advocates, including Governor Quinn, contend that the Act will bring jobs, tax dollars and investment to Illinois, and that the Act’s strict regulations will allow the fracking to be done safely.4 In a statement issued on May 31, 2013, Governor Quinn stated “this legislation will open the door for thousands of jobs and significant economic development in Southern Illinois. It could be a shot in the arm for many communities.”5 For a state suffering with a high unemployment rate, the development of shale could mean more than 45,000 new jobs and upwards of $10 billion in new private investment in Illinois.6 The Act also calls for a severance tax to be paid by the well operators as the development ramps up, which will provide an infusion of new public revenue to the State of Illinois.

Concurrently with the passage of the Act, the Department of Interior is pushing a proposed rule governing hydraulic fracturing on public lands. The proposed rule was published in the Federal Register (79 Fed. Reg. 31636) on May 24, 2013, with a 30 day public comment period. Please see http://www.seyfarth.com/publications/ES051713 for more information on this proposed rule.